Archive for July 2010

The following appears in the July 30-August 5 issue of the Long Island Business News:

Three months after missing New York’s March 31 fiscal deadline, the state has a budget – sort of. The Legislature approved the spending legislation but the fractured Senate Democratic majority bolted Albany without ratifying the revenue bills that fund the appropriations.

The good news: Gov. Paterson proved, beyond a shadow of a doubt, that if the chief executive is willing to use his constitutional powers, he’s in the driver’s seat when it comes to controlling the budget process.

In the 12 weekly emergency-spending bills that permitted the government to operate during the budget impasse, Paterson forced the Legislature to swallow various spending cuts. And the governor’s threat to let the state close down if a budget did not reach his desk by the end of June actually worked. Legislators panicked and met his deadline.

The bad news: Despite the governor’s 6,700 line-item vetoes (which saved approximately $525 million), the $136.5 billion budget is balanced by blue smoke and mirrors with total government spending up $9.6 billion or 7.6 percent – four times the inflation rate. This budget, according to the Manhattan Institute’s E.J. McMahon, “is a house of cards that won’t stand.”

Here are some of the problems with this budget: While overtaxed New Yorkers are still reeling from the devastating impact of the Great Recession and the $8.2 billion of new state taxes and fees imposed on them last year, the Legislature raised taxes by another $1.6 billion. Compare this with spending cuts and no tax increase in Chris Christie’s New Jersey.

The hodgepodge of hikes includes a state income tax on nonresident hedge fund managers who work in New York. The tax, which is projected to bring in $50 million, was described by Mayor Bloomberg – who expects many of these financial bigwigs to flee the city – as “the best thing that ever happened to Connecticut.”

Next, about $4.8 billion in budgeted revenue may never be realized or could come in significantly lower than forecasted. This questionable revenue includes $1 billion in new federal stimulus funding, $500 million in work-force reductions, $300 million in Medicaid fraud recovery, $330 million from the reduction of the sales tax clothing exemption and a one-time $300 million franchise fee from the long-delayed, scandal-ridden Aqueduct Racetrack slot machine project.

Finally, the budget contains $14 billion of one-shot fiscal gimmicks to fund ongoing expenses. The biggest chunks of nonrecurring revenue are $5.7 billion in federal stimulus dollars and $5.5 billion from the temporary personal income tax increase enacted in last year’s fiscal budget.

All this fiscal conjuring is a textbook example of Albany’s lack of will to rein in runaway spending and to deal with the state’s ever-growing structural deficit. The members of Albany’s ruling class are more interested in lavishing money on cronies and special interest groups than reducing spending and taxes to help jump-start New York’s ailing economy.

Thanks to their dereliction of duty, Comptroller Tom DiNapoli forecasted that over the next three fiscal years revenue will increase an anemic 3.4 percent annually but expenditures will jump 8.1 percent. He also estimated that in January the new governor of New York will have to grapple with a budget gap for fiscal year 2011-2012 of at least $7 billion and that it could “be larger if the economic recovery stalls or if resources in [this year’s] budget fail to materialize fully, as has occurred in previous years.”

I do not envy the herculean tasks our next governor will have to face. Nevertheless, if he has the strength of character to boldly and justly use the vast powers of his office, I am confident he will rescue New York from the political leeches that have been sucking dry its fiscal and economic resources.

The following appears in the July 16-22 issue of the Long Island Business News:

In June, I was honored to be appointed an unpaid member of the board of directors of the Nassau County Interim Finance Authority, which monitors Nassau’s broken finances. While I will not touch upon matters before the NIFA board on the op-ed pages of LIBN or any other publication, I do, however, believe it is my duty to comment on an elected official’s recent outburst unjustly questioning the integrity of NIFA Chairman Ronald A. Stack.

Readers will recall that NIFA was created, by an act of the New York Legislature in June 2000, as an oversight agency with borrowing powers to rescue Nassau County from years of fiscal mismanagement.

Since that legislation was signed into law, NIFA has transferred $105 million of state grants to the county and issued $3.8 billion in bonded debt to help restructure the county’s debt and reduce borrowing costs.

(Presently there are approximately $1.7 billion in outstanding NIFA bonds that won’t be fully retired until 2025.)

NIFA is also mandated to collect and distribute the county’s sales tax revenue (about $1 billion annually), monitor the county’s budget and audit county departments. The most significant power granted in its enabling legislation is the ability to impose upon the county a NIFA control period if:

a) The county defaults in the payment of its debts.

b) The county incurs a major operating funds deficit of 1 percent or more during any fiscal year.

c) The county violates the NIFA Act and substantially impairs the marketability of the county’s debt.

d) The county treasurer certifies that the county financing requirements will not be met.

Fortunately, that power has never been exercised and hopefully it never will.

To avoid a control period, particularly during these difficult fiscal and economic times, it is essential that NIFA board members and county elected officials cooperate for the sake of the common good of Nassau’s overburdened taxpayers. What is not needed is for one of them to issue reckless, irresponsible attacks on another for short-term political gain.

Sadly this has not been the case. On June 29, 2010, the presiding officer of the Nassau County Legislature, Peter Schmitt, filed an ethics complaint with Attorney General Andrew Cuomo and the state public integrity commissioner against Stack, an unpaid citizen volunteer. The complaint alleged that Stack violated the state’s code of ethics because he is employed as a public finance managing director at Wells Fargo, the bank that holds Nassau’s operating accounts.

The charge is baseless; Newsday called it despicable. When Stack joined Wells Fargo in 2009, the state Commission on Public Integrity was notified and it ruled that Stack could continue to serve on the NIFA board even though Wells Fargo had pre-existing agreements with Nassau County.

I have known Ron Stack on a professional basis for years and can attest that his integrity is beyond question. He has devoted many years to serving the people of New York, as a member of NIFA since its inception, and as deputy secretary to Gov. Hugh Carey during the state’s 1970s fiscal crises.

Stack, who is recognized as a public finance expert, also served with distinction as chairman of the Municipal Securities Rulemaking Board, the industry’s oversight body.

Though Stack and I are enrolled in different political parties (I’m a Conservative and he’s a Democrat), I have no doubt that we will work together on the NIFA board to help Nassau County overcome its fiscal malaise.

The following appears in the July 2-8 issue of the Long Island Business News:

Republican gubernatorial candidate Rick Lazio is calling for New York’s bicameral Legislature to be abolished and replaced with a unicameral version because, in his judgment, the present structure is fatally flawed.

Lazio claims a one-house Legislature would cost less, be more efficient and “lawmakers would be held accountable for blocking good ideas because of partisanship or special interest pressure.”

Frankly, I don’t believe abolishing the existing makeup of the Legislature would improve the mess in Albany. To the contrary, it would make it far worse.

The father of the U.S. Constitution, James Madison, held that men are not angels and, therefore, need government because there are “sown into their nature” human tendencies that can lead to political oppression. To check these appetites he called for the creation of a mixed government consisting of three separate branches of government, including a bicameral Legislature, to balance power and to protect liberties. Madison believed this approach would “protect the people against their rulers” and “against their fickleness and passion.”

To avoid legislative tyranny and to achieve consensus that protects majority and minority rights, the Founding Fathers created a bicameral Legislature precisely because it would encourage gridlock and multiplicity of interests, thus making it difficult to secure a majority and preventing a single interest or a demagogue from dominating and imposing its will.

They agreed with Madison’s position expressed in Federalist No. 10 that by expanding the sphere of the Legislature “you take in a greater variety of parties and interests; you make it less probable that a majority of the whole will have a common motive to invade the rights of other citizens … more difficult for all who feel it to discover their own strength and to act in unison with each other.”

Lazio is right that in Albany things are pretty bad under the present legislative system. One can only imagine how much worse it would be if the Senate were eliminated. The speaker of a one-party dominated house and the public employee unions would call every shot because there would not be another body to stop him or to slow him down.

A unicameral Legislature controlled by Shelly Silver or his successor would afford pro-job creation interests no shelter from the assaults of those pushing for more spending and higher taxes. A unicameral Legislature would deprive reform governors the ability to play one house against the other as Mario Cuomo did in the 1980s.

I disagree with Rick Lazio’s assertion that the problem in Albany is “the very structure of government itself.” New York’s legislative structure, which is fundamentally a clone of the federal one, is sound. The real problem is that many of its members hold office not to promote the common good but to promote what they perceive as their individual good – that which benefits them personally.

James Madison assumed that the Legislature in a constitutional republic, would be dominated by people of high character “whose wisdom may best discern the true interest of their country and whose patriotism and love of justice will be least likely to sacrifice it to temporary or partial considerations.”

This is not the case in Albany. The state Legislature is populated by too many hacks interested solely in lining their pockets and those of their cronies. That’s why almost every week there’s an announcement that another legislator is being investigated, subpoenaed, indicted or jailed.

The Legislature can only be as good as the people who serve in it. And until there is a statewide voter rebellion that throws out the bums who are abusing the system, expect self-interest to take precedence over much-needed public policy reforms regardless of the Legislature’s structure.